How will the Child Benefit changes affect independent contractors?
Many contractors and freelancers are fortunate enough to be earning more than £50,000 per annum and these contractors are likely to be affected by the latest changes to Child Benefit.
If you earn between £50,000 and £60,000 your child benefit payments will be eroded by 1% for each £100 of income in excess of £50,000. If you do not opt out, the child benefit you have overpaid will be clawed back via your self assessment tax return by a “High Income Child Benefit Charge”.
If you earn in excess of £60,000 then you are not entitled to receive any Child Benefit at all and you should opt out immediately. If you do not, then the overpayment will again be clawed back via your self assessment return.
For contractors operating their own limited companies, the impact of the changes can be minimised or wiped put altogether with a bit of careful planning. Two strategies to consider (which are also excellent tax planning):
As the benefit is now assessed based on only the highest earning spouse, there may opportunity to appoint their spouse as a shareholder, thus reducing the income of the main shareholder.
Limit withdrawals from the company (for the main shareholder) to £50,000, leaving the balance in the company to fund pension contributions, a warchest for periods of low earning or even allow the funds to build up in the company to withdraw tax efficiently at retirement.
For further information on this, and to see how it affects you, please contact us here or call us on 01324 471287
The BroomeAffinity Team